Cuomo Advised to End N.Y. Clothes Exemption to Help Poor

By Martin Z. Braun -
Nov 15, 2013

New York state should end a sales-tax exemption for less-expensive shoes and clothes to cover levy
reductions for low- and middle-income residents and property
owners, a panel recommended to Governor Andrew Cuomo.

Ending the exemption on clothing and footwear that costs
less than $110 would raise $800 million a year, the commission
said yesterday in a report to Cuomo. More revenue could be
brought in by taxing additional items and some services, the
panel said.

Changes should also be made in business levies, such as
merging “badly outdated” bank- and corporate-franchise taxes,
the commission said in the report. The panel called for a re-evaluation of 50 different credits aimed at spurring job growth
and valued at $1.7 billion this year.

“Since being elected governor, my administration has
focused on reversing New York’s negative tax reputation,” Cuomo
said in a statement accompanying the report’s release.

New York ranked at the bottom among states in terms of tax
climate in 2010, according to a report by the Tax Foundation, a
nonprofit research group in Washington. It had the worst rating
for business taxes headed into 2014, based on a comparison of
corporate levies and those on property, individual income,
retail sales and unemployment insurance costs.

Costly, Complex

“New York’s taxes are still too high and its tax code too
complex, placing undue burdens on individuals and businesses,”
said the commission, led by former state Comptroller Carl McCall
and investment banker Peter Solomon.

Cuomo appointed the panel, called the New York State Tax
Reform and Fairness Commission, last year with a mission to
review the state’s tax code and propose ways to make it simpler,
more efficient and more equitable. Their recommendations were
supposed to be “revenue-neutral,” or not designed to change
the amount that lands in state coffers.

New York exempts necessities such as less-expensive
clothing, food and health-related products to shield consumers
from the full burden of sales taxes, forgoing $3.2 billion in
revenue. Such exemptions create a “highly inefficient” method
of aiding lower-income families, according to the report. It
said less than 30 percent of the benefit, or about $900 million,
goes to households with annual income of less than $50,000.

The commission also said more than $800 million in
additional relief could be funded by taxing services such as dry
cleaning, by eliminating a gasoline tax cap that holds the rate
at 8 cents a gallon and by applying the sales levy to tickets to
movies, sporting events and Broadway shows.

Even Split

The panel recommended splitting the $800 million raised by
ending some sales-tax exemptions evenly between relief for low-and middle-income families and property owners, according to the
report. It said ending the gas tax cap would bring in $371
million a year in new revenue.

Based on concerns that the state reaches too deeply into
families’ pockets, with its estate-tax exemption level capped at
$1 million, the commission recommended increasing that threshold
to $3 million to help reduce the incentive for residents to move
to states such as Florida that don’t impose such taxes.

Raising the exemption to that level would prevent levies on
almost three-quarters of all New York estates, reducing state
revenue by $300 million, the commission said. Only New Jersey
and Rhode Island have a lower threshold for estate-tax
exemptions, out of the 17 that impose such levies, the report
showed. The federal tax exemption is $5.25 million.

To pay for the change, New York should reinstate a gift tax
and close a loophole that lets residents set up out-of-state
trusts to avoid income levies.

Business Levies

On industry taxes, the commission proposed combining bank
and corporate-franchise levies, so that general businesses and
financial institutions aren’t treated differently. To cover the
$130 million in forgone revenue that would result, the panel
recommended repealing or modifying business credits, including
one that subsidizes in-state film and television production.

Corporate tax credits benefit just 1 percent of businesses
that pay levies, according to the report. Scaling back breaks
and monitoring them to ensure promised job growth occurs may
create enough savings to reduce the corporate tax rate, Solomon
said yesterday in a telephone interview.

“The business community has a choice,” Solomon said.
“They can satisfy 100 percent of corporations or they can
satisfy 1 percent of corporations.”

The report showed the state could raise $180 million a year
by ending or changing investment tax credits, including those
for the financial-services industry. It said the state could get
$150 million in new revenue by simplifying corporate audits.

The panel is one of two tax commissions appointed by Cuomo,
a 55-year-old Democrat. The second, headed by McCall and former
Republican Governor George Pataki, has been charged with
suggesting ways to cut property and income taxes.

In 2011, Cuomo pushed through the legislature tax cuts for
middle-income earners while raising them for wealthier
residents.